Omni-Lite Continues Engineering And
Financial Success In 1999
MANAGEMENT DISCUSSION AND ANALYSIS
OMNI-LITE INDUSTRIES CANADA INC. AS A
BUSINESS
Omni-Lite's competitive strengths lie in the development and manufacture of specialized
products utilizing advanced materials and precision computer controlled cold forging techniques.
Combining these advantages and a team of key design and material engineers, production
technicians and marketing and administrative support personnel has enabled Omni-Lite to
prosper in the competitive environment of the
21st century. This strategy has quickly brought Omni-Lite to the forefront of technological
development.
OMNI-LITE'S MARKETS
Omni-Lite's primary market is the development of precision components utilized by many of the
world's largest corporations. In 1999, Omni-Lite's components were utilized in the products of
Daimler-Chrysler, GM, Ford, Mazda, Nike, adidas, Reebok, the U.S. Army and NATO.
Milestones achieved in 1999 include the completion and delivery of a transmission component
utilized in the SUV program at Daimler-Chrysler, a 2nd generation coupling for the US Army and
NATO, a critical component of an inventory control system for the apparel industry and several
products for the 2000 Olympics in Sydney, Australia.
Omni-Lite's sports and recreational products are marketed in over 140 countries worldwide
through the catalogs of adidas, Nike, Eastbay, M-F Athletics and Springco.
C. PRODUCT PROFILE
Omni-Lite's annual growth rate has been fueled by continued interest in the company's
automotive, military and sports and recreation products. Of particular significance is the
development of new revenue streams from the commercial and aerospace products now provided
by the company.
1. Automotive Products
Omni-Lite's strength in the automotive area has been established through the manufacture of a
series of components utilized in the transmissions of Daimler-Chrysler automobiles. In 1999,
Omni-Lite delivered a second component for the SUV program at Daimler-Chrysler. The
company has recently been approached to develop a 3rd component for this customer.
This technology has been extrapolated to airbag components for GM, Ford and Mazda. OmniLite's automated production systems are ideally suited to providing close tolerance components
in a competitive marketplace. The quality of Omni-Lite’s components have continually placed
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
United States Dollars
December 31, 1999 and 1998
Omni-Lite as one of the most highly rated suppliers with one of the highest quality and lowest
rejection rates in the industry.
2. Military Products
In September 1997 Omni-Lite began the manufacture of a specialized coupling for the U.S.
Army. Production began in December 1997 under a 5-year contract. Since the initiation of this
contract, Omni-Lite has been asked to complete an aggressive program to vastly improve this
product. Omni-Lite has successfully delivered this second-generation coupling to the US arsenal.
The company is now in full-scale production of this component which should result in significant
increases in revenue during fiscal 2000. In a second development, Omni-Lite has completed two
prototype contracts to develop products for the US Special Forces. These products are currently
being tested by the US Military.
3. Sports and Recreation
Omni-Lite's initial success in supplying products to athletes who won 20 gold medals in the
Olympics in Atlanta, including the gold shoes that propelled Michael Johnson to two gold
medals, has allowed the company to capture a market of approximately 50% of the track spikes
used worldwide and allowed expansion into a number of other related opportunities.
Omni-Lite's composite track and field products are continuing to be shipped from the Asian
factories supplying Nike, adidas, Reebok, Puma, New Balance and Fila. The company has
developed a mating receptacle for molding into the sole of various sports shoes including golf,
soccer, football and track and field. Omni-Lite sports and recreation products are resold
worldwide through Nike, adidas, Eastbay, Footlocker, Champs Sports, Springco Athletics, M-F
Athletics and about 300 independent sporting goods catalogs and retail stores. Omni-Lite
compression style track spikes are mandatory at several track facilities including the PanAmerican Games facility in Winnipeg. The compression style of product is also mandatory for
the US Olympic Trials held in Sacramento, California. Omni-Lite has completed the
development of several new products for the Olympics in Sydney, Australia in September 2000.
As a result many of the track and field athletes at the Olympics will be utilizing Omni-Lite’s
components. Many of these could become production products in future generations of athletic
footwear.
D. GROWTH RECORD
January 1998 saw the initiation of an expansion program during which Omni-Lite's
manufacturing capability increased from two production systems to ten by April 2000.
Throughout 1999, Omni-Lite continued on a growth curve that saw revenue increase 13% over
2
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
United States Dollars
December 31, 1999 and 1998
the previous year's results. Revenues for calendar 1999 exceeded US$ 1,924,000 with cash flow
of over US$ 984,000. Of particular note 4th quarter revenues exceeded US$ 686,000 producing
net income of US$ 0.03 per share; an increase of 650% over the previous period.
E. GROWTH EXPECTATIONS
In 1999 Omni-Lite continued a period of rapid growth and development. Much of this growth has
been from Omni-Lite's current customer base. This suggests a large degree of satisfaction and
close cooperation between Omni-Lite and its customers. As the production facility is currently
operating at 10-15% of its full capacity, the company is now formalizing a sales team in order to
expedite sales growth to maximize plant utilization. Further growth in 2000 will stem from the
development of components from both new and existing customers.
F. RISK FACTORS
The business climate of the 21st century presents risks that include the development of
competition on a worldwide basis. As Omni-Lite grows in revenue the company becomes subject
to increasing interest from corporations that would like to imitate the successes that have been
achieved. The company has and will continue to aggressively protect itself through a variety of
means that include:
1. patent and trademark protection
2. license agreements
3. joint venture agreements
4. development of proprietary technology and products
While key individuals are continuously trained in the critical aspects of the company’s
technology, providing redundancy at the production level, retaining highly skilled staff is a
challenge in the strong economies in which the company operates. The company has experienced
additional expense as key staff are trained and key functions such as accounting are brought inhouse. The full benefit of these expenditures began to appear in the 3rd and 4th quarters of 1999
and should continue in 2000.
G. INTERNATIONAL OPERATIONS
To support the international scope of the market place, Omni-Lite has established two wholly
owned subsidiaries in Barbados. These complement the production center in Cerritos, California.
This structure enables the company to retain a high net income.
3
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
United States Dollars
December 31, 1999 and 1998
Omni-Lite Industries Canada Inc.
Consolidated Financial Statements
For each of the years ended
December 31, 1999 and 1998
Contents
Management Report
Auditors’ Report
2
3
Consolidated Financial Statements
Consolidated Balance Sheets
4
Consolidated Statements of Operations and Retained Earnings
5
Consolidated Statements of Cash Flows
6
Notes to Consolidated Financial Statements
7 - 16
4
Management Report
The accompanying financial statements and all information in the annual report are the responsibility of
management. The financial statements have been prepared by management in accordance with the
accounting policies outlined in the notes to the financial statements. Financial statements include certain
amounts based on estimates and judgements. Management has determined such amounts on a
reasonable basis in order to ensure that the financial statements are presented fairly, in all material
respects. In the opinion of management, the financial statements have been prepared within acceptable
limits of materiality and are in accordance with Canadian generally accepted accounting principles. The
financial information contained elsewhere in the annual report has been reviewed to ensure consistency
with that in the financial statements.
Management maintains appropriate systems of internal control. Policies and procedures are designed to
give reasonable assurance that transactions are appropriately authorized, assets are safe-guarded and
financial records are properly maintained to provide reliable information for the preparation of financial
statements.
BDO Dunwoody LLP, the external auditors, conduct an independent examination of the financial
statements in accordance with generally accepted auditing standards in order to express their opinion on
the financial statements. Their examination includes a review and evaluation of the Company’s system of
internal controls and such tests and procedures as considered necessary to provide reasonable
assurance that the financial statements are presented fairly.
The audit committee of the Board of Directors, with a majority of its members being outside directors,
have reviewed the financial statements, including notes thereto, with management and BDO Dunwoody
LLP. The financial statements have been approved by the Board of Directors on the recommendations of
the audit committee.
April 8, 2000
2
Auditors' Report
To the Shareholders of
Omni-Lite Industries Canada Inc.
We have audited the consolidated balance sheets of Omni-Lite Industries Canada Inc. as at December
31, 1999 and 1998 and the consolidated statements of operations, retained earnings and cash flows for
the years then ended. These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the consolidated
financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial
position of the Company as at December 31, 1999 and 1998 and the results of its operations and its cash
flows for the years then ended in accordance with generally accepted accounting principles.
Chartered Accountants
Calgary, Alberta
April 8, 2000
(except for Notes 13 and 18 which is dated April 27, 2000)
3
Omni-Lite Industries Canada Inc.
Consolidated Balance Sheets
United States Dollars
December 31
1998
1999
Assets
Current
Cash
Accounts receivable
Due from related parties (Note 6)
Inventory
Prepaids
$
96,640
580,468
30,815
375,303
1,083,226
102,560
297,821
160,500
249,144
18,882
828,907
219,919
219,919
-
200,000
17,986
17,985
2,449,808
1,224,266
536,620
515,801
Due from related parties (Note 6)
Deposit on equipment
Investment (Note 14)
Capital assets (Note 4)
$
Deferred development and patent expenditures (Note 5)
$
4,307,559
$
3,006,878
$
310,875
19,691
143,351
473,917
$
110,392
29,262
32,467
172,121
Liabilities and Shareholders’ Equity
Current
Accounts payable
Income taxes payable
Due to related party (Note 6)
445,754
300,000
Deferred income taxes
255,000
1,174,671
211,000
683,121
Share capital (Note 8)
Retained earnings
2,169,387
963,501
3,132,888
2,169,387
154,370
2,323,757
Long-term debt (Note 7)
$
4,307,559
On behalf of the Board:
Director
David Grant
Director
Don Kelly
4
The accompanying notes are an integral part of these consolidated financial statements.
$
3,006,878
Omni-Lite Industries Canada Inc.
Consolidated Statements of Operations and Retained Earnings
United States Dollars
For the years ended December 31
Revenue
1998
1999
$
1,924,339
Direct costs
Cost of goods sold and related overhead
Gross margin
Overhead expenses
Amortization
General and administrative
Interest on long term debt
Income before other items
Other
Write down of inventory
Foreign exchange and other
$
1,701,395
629,344
486,294
1,294,995
1,215,101
131,123
237,753
40,116
408,992
95,269
190,477
6,167
291,913
886,003
923,188
8,193
8,193
(30,000)
28,542
(1,458)
884,545
931,381
122,414
44,000
(91,000)
75,414
105,537
101,000
(76,275)
130,262
Net income for the year
809,131
801,119
Retained earnings (deficit), beginning of year
154,370
(11,229)
-
(635,520)
Income before income taxes
Income taxes
Current
Deferred
Utilization of loss carryovers
Excess of purchase price paid over carrying value for purchase of
subsidiary (Note 3)
Retained earnings, end of year
$
963,501
$
154,370
Earnings per share (Note 13)
$
0.08
$
0.08
Weighted average number of shares outstanding
10,753,902
5
The accompanying notes are an integral part of these consolidated financial statements.
10,256,321
Omni-Lite Industries Canada Inc.
Consolidated Statements of Cash Flows
United States Dollars
1998
1999
For the years ended December 31
Cash flows from operating activities
Net income for the year
Adjustments for:
Amortization
Deferred income taxes
Cash flow from operations
Net change in non-cash working capital balances
Accounts receivable
Inventory
Prepaids
Accounts payable
Income taxes payable
Due to related parties
$
809,131
$
801,119
44,000
984,254
95,269
101,000
997,388
(282,647)
(126,159)
18,882
200,483
(9,571)
240,569
1,025,811
(203,901)
(7,082)
(10,982)
54,304
29,262
32,467
891,456
145,754
145,754
121,607
(191,579)
(354,922)
300,000
(124,894)
131,123
Cash flows from financing activities
Issue of share capital, net of share issue costs
Repayments and advances to related parties, net
Repayment of long-term debt
Proceeds from long-term debt
Cash flows from investing activities
Purchase of capital assets
Deferred development costs
Advances to Formed Fast Inc.
Deposit on capital assets acquisition
Investment in shares
Increase (decrease) in cash
Cash, beginning of year
Cash, end of year
(1,282,637)
(94,848)
200,000
(1,177,485)
(755,738)
(104,852)
250,000
(128,000)
(17,985)
(756,575)
(5,920)
9,987
92,573
102,560
$
6
The accompanying notes are an integral part of these consolidated financial statements.
96,640
$
102,560
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
1.
Nature of Operations
Omni-Lite Industries Canada Inc. (the "Company") is a public company incorporated under the Laws
of the Business Corporations Act of Alberta in 1992. Its head office operations are located in Calgary,
with research and development and production operations in Cerritos, California, U.S.A. and an
international office in Barbados. The companies activities consist of developing, producing and
marketing specialized metal matrix composite, aluminum and carbon steel products. These products
include components for the sports and recreation, automobile, aerospace, military and commercial
industries. Since the most significant portion of the Company's operations are located in the United
States and its normal transaction currency is United States dollars, these financial statements are
stated in United States dollars.
2. Significant Accounting Policies
The consolidated financial statements of the Company have been prepared by management in
accordance with generally accepted accounting principles in Canada. The preparation of financial
statements requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ from those
estimates. The financial statements have, in management’s opinion, been properly prepared using
careful judgement with reasonable limits of materiality and within the framework of the significant
accounting policies summarized below:
(a) Consolidation
These financial statements include the accounts of the Company and its wholly owned
subsidiaries, Omni-Lite Industries International Inc., Omni-Lite Industries California Inc. and
Formed Fast Barbados Inc. (Note 3). All significant inter-company transactions have been
eliminated. Foreign subsidiaries included in the consolidation are translated using the temporal
method for integrated operations.
(b) Inventory
Inventory consists of raw materials, work-in-progress and finished goods inventory that is carried
at lower of average standard costs, which includes materials, labour and allocated overhead
costs, and net realizable value. Included in inventory is approximately $52,500 (1998 - $16,000)
of allocated overhead.
(c) Revenue recognition
Revenue is recognized when goods are shipped to the customer.
7
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
United States Dollars
December 31, 1999 and 1998
2. Significant Accounting Policies - continued
(d) Capital assets
Capital assets are carried at cost less accumulated amortization calculated on the following basisProduction equipment
Computer equipment
Furniture & fixtures
Leasehold improvements
-
30 year straight-line
30% declining balance
20% declining balance
5 year straight-line
One-half the normal amortization is provided for in the year of acquisition.
(e) Investments
Investments are carried at original cost and are only written down if there is other than a
temporary decline in value. Realized gains and losses are recognized when shares are actually
disposed.
(f) Deferred development costs and patent expenditures
Expenditures on development of new products are capitalized as incurred. Deferred development
costs are being amortized over 10 years using the straight-line basis. The unamortized costs are
reviewed on an annual basis and are written down if the value which can be considered
reasonably recoverable from net revenues over the remaining amortization period is less than the
carrying value at that time. These costs are recorded net of related investment tax credits
claimed.
(g) Deferred income taxes
The Company follows the tax allocation basis in accounting for income taxes. Deferred income
taxes result primarily from claiming capital cost allowance on capital assets and research and
development expenditures for income tax purposes in excess of amortization recorded in the
accounts.
(h) Foreign exchange
Foreign currency balances of foreign subsidiaries are translated using the temporal method for
integrated operations on the following basis:
- monetary assets and liabilities are translated at the rates of exchange prevailing at the
balance sheet dates;
- non-monetary assets, liabilities and related amortization and depletion expense are translated
at historical rates;
- sales, other revenue, royalties and all other expenses are translated at the average rate of
exchange during the month in which they are recognized.
The resulting foreign exchange gains and losses are included in earnings.
8
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
United States Dollars
December 31, 1999 and 1998
2. Significant Accounting Policies - continued
(i) Financial instruments
The Company carries a number of financial instruments. Unless otherwise indicated, it is
management's opinion that the Company is not exposed to significant interest, currency or credit
risks arising from these financial instruments. The fair values of these financial instruments
approximate their carrying values, unless otherwise noted.
(j) Measurement uncertainty
The amounts for work in progress in inventory is based on standard costing and other cost
allocation estimates. By their nature, these estimates are subject to measurement uncertainty
and the effect on the consolidated financial statements of changes in estimates in future periods
could be significant.
The Company has conducted a study for it’s internal policies with respect to transfer pricing within
the consolidated group. The consolidated income tax provision provided herein has been based
on management’s best estimate of the pricing that is equivalent to comparative uncontrolled
pricing for same or similar products.
The consolidated financial statements include estimates of useful economic life of capital and
development costs. Due to varying assumptions required to be made with regards to future
recoverability of these assets, the amortization recorded by management based on their best
estimate in this regard may be significantly different from those determined based on future
operational results.
The effect on the financial statements resulting from such adjustments, if any, required to the
above estimates will be reflected in the period of settlement.
(k) Stock-based compensation plan
The Company has a stock-based compensation plan, as described in Note 17. No compensation
expense is recognized for this plan when stock or stock options are issued to employees. Any
consideration paid by employees on exercise of stock options or purchase of stock is credited to
share capital. If stock or stock options are repurchased from employees, the excess of the
consideration paid over the carrying amount of the stock or stock option cancelled will be charged
to retained earnings.
9
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
United States Dollars
December 31, 1999 and 1998
3. Business Combination
On February 28, 1998, the Company completed its acquisition of Formed Fast Inc., a customer of the
Company’s automotive components since July of 1996. Consideration paid was 526,000 shares at a
value of $685,720. Subject to attainment by the original Formed Fast shareholder of certain sales
objectives which would provide incremental revenue to the Company, additional shares not exceeding
1,500,000 will be released from escrow. Any shares remaining in escrow on December 11, 2002 will
be cancelled. Subsequent to the year end, 1,000,000 shares have been cancelled (Note 18). This
business combination has been accounted for using the purchase method, however because the
combination was with a related party, it has been accounted for at the carrying amount in accordance
with CICA Handbook Section 3840.
The assets acquired on the purchase of Formed Fast Inc. are as detailed below:
Working capital
Capital assets
Debts assumed
$
34,200
250,000
(234,000)
Net book value of assets acquired
$
50,200
Purchase price paid via the issue of 2,026,000 shares (Note 8(b))
$
685,720
Net purchase price discrepancy allocated to retained earnings
$
635,520
4. Capital Assets
Cost
Production and other equipment
Computer equipment
Leasehold improvements
$
$
2,575,103
18,554
4,012
2,597,669
131,997
11,961
3,903
147,861
1998
Net Book
Value
1999
Net Book
Value
Accumulated
Amortization
$
2,443,106
6,593
109
2,449,808
$
$
1,220,515
2,839
912
1,224,266
$
5. Deferred Development and Patent Expenditures
Deferred development and patent
costs
10
$
Cost
Accumulated
Amortization
767,607
$
234,157
$
1999
1998
Net Book
Value
Net Book
Value
536,620
$
515,801
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
United States Dollars
December 31, 1999 and 1998
6. Due from (to) Related Parties
The amount includes a housing loan to the Company’s officers in the amount of $219,919 bearing
interest at 5%, repayable over a maximum period of 10 years. The property acquired with the housing
loan currently serves as security on the Company’s revolving line of credit (Note 7). Of the amounts
outstanding, $44,848 were repaid on the housing loan subsequent to year end.
During the year, a director loaned the Company US$110,884. This loan bears interest at 9% and has
no terms of repayment. Subsequent to the year end, $75,000 of this loan was repaid.
During 1998, a shareholder loaned the Company CDN$50,000 (US$32,467) bearing interest at 12%,
with no terms of repayment. This loan was paid out subsequent to the year end.
Subsequent to the year end, the due from related party of $30,815 was paid back in its entirety.
7. Long-term Debt
1998
1999
Revolving line of credit with a credit limit of $500,000, bearing interest at the
Bank’s reference rate plus 1%, up for re-negotiation July 7, 2000, secured
by general blanket security agreement on all of the assets of the Company
along with a deed of trust on the California home of the President and a
Director of the Company.
$
445,754
$
300,000
The Company is currently re-negotiating their revolving line of credit into a term-loan for 5 years at
current rates, and as such, has classified the loan as a long-term obligation.
8. Share Capital
(a) Authorized
Unlimited number of common shares
Total issued and outstanding, beginning of year
Issued for cash upon exercise of stock options
Issued on acquisition of subsidiary (1)
Total issued and outstanding, end of year
Number of
Shares
10,753,902
10,753,902
(1) 1,500,000 of these shares are held in escrow as per Note 3.
11
1998
1999
(b) Issued
Amount
$2,169,387
$2,169,387
Number of
Shares
8,431,236
296,666
2,026,000
10,753,902
Amount
$ 1,362,060
121,607
685,720
$ 2,169,387
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
United States Dollars
December 31, 1999 and 1998
8. Share Capital - continued
(c) Stock options
As at December 31, 1999 the Company has the following stock options outstanding:
Directors and employees
Consultant
Consultant
Consultant
Directors and employees
Directors and employees
Employee
Directors
Employees
Employees
Number
of Shares
133,000
300,000 (1)
30,000 (2)
20,000
228,154
140,000
50,000
33,333
40,000
100,000
1,074,487
Price
Cdn $/Share
$0.60
$2.25
$2.40
$2.72
$2.10
$2.10
$2.10
$2.01
$1.90
$1.80
Expiry
Date
Sept. 15, 2002
Nov. 18, 2002
Feb. 13, 2003
Aug. 06, 2003
Oct. 8. 2003
Oct. 28, 2003
Feb. 3, 2004
April 1, 2004
Apr. 1, 2004
July 1, 2004
(1)
These options vest at the rate of 1/3 each year over three years commencing November 1, 1998.
(2)
These options vest at the rate of 1/3 each year over three years commencing February 13, 1999.
At December 31, 1998, the Company had stock options to employees, consultants and directors
outstanding to purchase 1,074,487 common shares at exercise prices ranging from $0.60 to
$2.72 per share. The options vest at a rate of 1/3 each year over a three year period and expire
between September 15, 2002 to July 1, 2004. Certain of the options were re-priced to $1.20 per
share subsequent to the year end.
During 1999, the Company issued 223,333 stock options to employees and consultants of the
Company and cancelled 195,179 stock options from directors and a consultant. Subsequent to
the year end, the Company granted a further 95,000 stock options. These new options carry
exercise prices ranging from $1.20 to $2.50 Canadian per share and expire between January 21,
2002 to January 21, 2005.
12
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
United States Dollars
December 31, 1999 and 1998
9.
Income Taxes
Statutory tax rate
Income taxes at the statutory rate
Rate differential on income earned in foreign jurisdiction
Utilization of loss carryovers
1999
1998
44.6%
44.6%
$ 392,300
(225,886)
(91,000)
$ 75,414
$ 415,400
(208,863)
(76,275
$ 130,262
At December 31, 1999, the Company had approximately $114,000 (1998 - $259,000) of Canadian
loss carryover balances which commence expiring in 2002. In addition, the Company has capital
cost pools and deferred development cost pools approximating $29,000 (1998 - $100,000) to deduct
against future taxable income. At December 31, 1999, the Company has approximately $245,000
(1998 – $308,000) of US loss carryover balances and available depreciable US tax pools of
approximately $1,890,000 (1998 – $703,000).
10. Segmented Information
Operating Segments:
The Company operates in five industry segments, the sports and recreation, automobile, aerospace,
military and commercial industries all of which operate as one operational segment.
Geographic Segments:
The Company has its operations in the United States, Canada and internationally.
December 31, 1999
Revenues, external
Capital assets
United States
$
$
December 31, 1998
Revenues, external
Capital assets
131,848
2,441,036
Canada
$
$
United States
$
$
337,905
993,199
8,772
Canada
$
$
231,067
International
$
$
1,792,491
-
Total
$
$
International
$
$
1,363,490
-
Total
$
$
In 1999, revenues from four customers of the Company’s international segment represent
approximately $1,110,500 (1998 - $1,226,000) of the Company’s revenues.
13
1,924,339
2,449,808
1,701,395
1,224,266
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
United States Dollars
December 31, 1999 and 1998
11. Commitments
a) On October 1, 1999 the Company entered into a lease agreement for its office and production
facilities. The lease expires September 30, 2000 and requires minimum monthly lease payments
of $2,880. The Company must also pay its share of operating costs.
b) Pursuant to existing employment contracts dated July 1, 1999, the company is committed to
paying severance to certain employees in the event of a sale and is also committed to paying
bonuses based on sales and profitability.
c) The Company has committed to a 5% commission for a period of 10 years to an employee on the
sale of a certain product.
12. Related Party Transactions
During 1999, the Company paid management fees to directors of the Company of approximately $nil
(1998 – $59,000). The company also purchased machinery and equipment from a Company
controlled by a director in the amount of $1,120,700 (1998 - $977,873). These transactions were
recorded at the agreed to exchange amounts which equal carrying values of the vendor.
13. Earnings Per Share
Per share amounts have been calculated on the weighted average number of common shares
outstanding. The weighted average shares outstanding for the year ending December 31, 1999 was
10,753,902 (1998 – 10,256,321) inclusive of the issued but escrowed shares (Note 8).
Fully diluted earnings per share amounts resulting from potential exercise of the options outstanding
have not been disclosed as these exercises are not materially dilutive .
Giving effect to the cancellation of shares in escrow subsequent to year end (Note 18), pro forma
earnings per share would still approximate $0.08 per share.
14. Investment
Investment of CDN $25,000 is in an unrelated corporation. This investment is accounted for by the cost
method as there is no significant influence.
14
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
United States Dollars
December 31, 1999 and 1998
15. Financial Instruments
As disclosed in Note 2(i), the Company holds various forms of financial instruments. The nature of
these instruments and the Company's operations expose the Company to interest rate risk, industry
credit risk and foreign currency risk. The Company manages it's exposure to these risks by operating
in a manner that minimizes its exposure to the extent practical.
The Company’s short and long term borrowings are subject to floating rates. The floating rate debt is
subject to interest rate cash flow risk, as the required cash flows to service the debt will fluctuate as a
result of changes in market rates. As at December 31, 1999, the increase or decrease in net earnings
before taxes for each 1% change in interest rates on floating rate debt amounts to approximately
$4,500 (1998 - $3,000). The related disclosures regarding these debt instruments are included in
Note 7 of these financial statements.
A significant portion of the Company’s operations are located outside of Canada and, accordingly, the
related financial assets and liabilities are subject to fluctuations in exchange rates. The Company
manages its exposure to foreign currency fluctuations by maintaining foreign currency bank accounts
and receivables to offset foreign currency payables and planned expenditures.
16. Statement of Cash Flows
a) Commencing this year the Company has adopted the new recommendations of the Canadian
Institute of Chartered Accountants for the Statement of Cash Flows and has adopted it
retroactively.
c) Interest paid
Interest
Income taxes paid
$
$
1999
1998
37,056 $
25,275 $
6,167
-
c) Business combinations
During 1998, Formed Fast Inc. was acquired for $685,720 (Note 3) via the issuance of 2,026,000
common shares of the Company at a value of $0.338 per share.
15
Omni-Lite Industries Canada Inc.
Notes to Consolidated Financial Statements
United States Dollars
December 31, 1999 and 1998
17. Stock-Based Compensation Plans
A summary of the status of the Company’s stock option plan as of December 31, 1998 and 1999, and
the changes during the years ending on those dates is presented below (weighted average - “WA”):
Outstanding at beginning of year
Granted
Total issued and outstanding, end of year
Range of
Exercise Prices
$
0.60
$
1.20
$
1.80
$
1.90
$
2.10
Number of
Shares
250,000
190,000
440,000
Number Outstanding at
Dec. 31, 1999
100,000
150,000
100,000
40,000
50,000
440,000
WA
Exercise Price
$
0.96
1.59
$
1.23
WA Remaining
Contractual Life
2.7
3.8
4.5
4.3
4.1
3.8
Number of
Shares
100,000
150,000
250,000
WA
Exercise Price
$
0.60
1.20
$
0.96
WA Exercise Price
0.60
1.20
1.80
1.90
2.10
1.23
18. Subsequent Event
On April 27, 2000, the Company executed an agreement pursuant to the terms of which 1,000,000 of
the 1,500,000 shares held in escrow (Note 3) are to be cancelled. The remaining 500,000 shares
continue to be subject to an earn out agreement.
19. Comparative Figures
Certain comparative amounts presented in the financial statements have been reclassified to conform
with the current period’s presentation.
20. The Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits rather than four to
identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using year 2000 dates is processed. In addition, similar problems
may arise in some systems which use certain dates in 1999 to represent something other than a date.
Although the change in date has occurred, it is not possible to conclude that all aspects of the Year
2000 Issue that may affect the entity, including those related to customers, suppliers, or other third
parties, have been fully resolved.
16